Charities in Politics: A Reappraisal

Article excerpt

ABSTRACT

Federal law significantly limits the political activities of charities, but no one really knows why. In the wake of Citizens United, the absence of any strong normative grounding for the limits may leave the rules vulnerable to constitutional challenge. This Article steps into that breach, offering a set of policy reasons to separate politics from charity. I also sketch ways in which my more precise exposition of the rationale for the limits helps guide interpretation of the complex legal rules implementing them.

Any defense of the political limits begins with significant challenges because of a long tradition of scholarly criticism of them. Critics of the limits suggest that the "market failures" that justify tax subsidies for charity also afflict group efforts to monitor politicians and organize politically, and thus the subsidy should extend to cover those activities. These claims, though, overlook a series of additional issues suggested by transaction cost economics and other aspects of economic theory.

Most significantly, even if lobbying and electioneering should be subsidized, it does not follow that these functions should be carried out by charities. I argue that combining politics with charity may produce a set of diseconomies of scope, including higher agency costs, diminished "warm glow" from giving, and greater inframarginality of deduction recipients. In addition, I argue that the economically ideal tools for reaching the socially optimal levels of charity and lobbying are incompatible with one another. Although there are also offsetting gains from the combination, many of these gains further exacerbate the diseconomies.

TABLE OF CONTENTS

INTRODUCTION
  I. BACKGROUND
 II. PRESERVING THE GOVERNMENT'S MONEY?
     A. Government Failure and Diversity Rationales
        1. "Get Stuff"
        2. Interest Representation
        3. Political Pluralism
     B. Privatization Rationale
     C. Government Complement Rationale
     D. An Initial Assessment Proves Incomplete
III. LOBBYING CHARITIES OR A SUBSIDY FOR LOBBYING?:
     ECONOMIES AND DISECONOMIES OF SCOPE
     A. Diseconomies
        1. Agency Costs
        2. Effects on Warm Glow
        3. Regulatory Mismatch
        4. Inframarginality of the Deduction
        5. Entanglement and Executive Attention
     B. Economies
        1. Cost Advantages of Combined Activities
        2. The Downside of Cost Advantages
     C. Summary
 IV. LEGAL IMPLICATIONS
     A. Defining Lobbying
     B. "Substantial"
     C. Donations or Organizations?
  V. ELECTIONEERING
     A. Defending the Electioneering Ban
     B. Defending Exceptions to the Electioneering Ban
     C. Transparency as a Precondition for the
        Exceptions
CONCLUSION

INTRODUCTION

As the Supreme Court has deregulated campaign finance over the past few years, money has poured into every crevice of politics, but maybe nowhere more so than in the nonprofit sector. (1) Most of the notorious "Super PACs," including Karl Rove's Crossroads GPS, are organized as nonprofits. (2) Federal tax law in theory prevents most nonprofits from devoting the bulk of their efforts to political campaigns and also limits the lobbying efforts of true charities, such as hospitals, schools, and churches. (3) But now that the Court has declared the pool open, even church leaders are diving in, with a coalition of ministers frankly daring the IRS to attempt to enforce its rules against them. (4)

Should we care? That is the central question for this Article. Legal limits on lobbying by charities have been around for a long time, but truly thorough explanations for why they exist have been slow to develop) For about forty years, that was a problem mostly for academics, and perhaps for Congress.

Now, though, Citizens United v. FEC and the rest of the deregulatory wave of campaign finance decisions lend new urgency to identifying the government's interest in regulating the political activities of charities. …